Who really foots the bill for Pratt's philanthropy?

QUEENSLAND vegetable farmer Paul Ziebarth blew his top when
politicians including Victorian Premier John Brumby and Prime
Minister John Howard talked in glowing terms about billionaire
Richard Pratt this week.

"There were a lot of people telling the television what a great
guy he was," Ziebarth says. "When I heard that I yelled at the
television and the kids ran for cover. It's easy to be generous
with other people's money. He's screwing us and takes that money
and builds this image of a wonderful benefactor in Australia."

To put it mildly, Ziebarth and fellow Queensland fruit and
vegetable growers feel ripped off by Pratt, his packaging company
Visy and the illegal deal he struck with Russell Jones, the then
chief executive of his company's chief rival, Amcor.

Pratt has made admissions to the Australian Competition and
Consumer Commission that he and his company arranged and put into
effect a deal with Amcor to raise prices on cardboard boxes and rip
off their customers. The ACCC has said price increases of up to 8
per cent a year were agreed on and that Amcor also agreed not to
poach Visy's customers, or to compensate Visy if it did.

Not everyone is as apparently relaxed as Brumby and Howard about
the famously philanthropic Pratt and the laws he has broken. A
class action against the two companies puts overpayments by
customers over the five years at $700 million.

In a speech in 2004, Graeme Samuel outlined the seriousness with
which he viewed cartels and his goal of busting them: "I would
prefer to have jail sentences for cartel operators It is
just fraud and quite deliberate." In another speech, also in 2004,
he said: "Cartel behaviour is, in reality, a form of theft and
little different from classes of corporate crime that already
attract criminal sentences."

Brumby might be happy to have Pratt around for dinner, but it
looks like Samuel will have him for lunch.

There are signs the penalty orders sought by the ACCC will be
steep in terms of a financial penalty of somewhere between $30
million and $40 million. There are also likely to be tough
conditions placed on the company including injunctions against the
behaviour reoccurring, orders for the company to enter into
compliance programs and possible surveillance.

After all, it's not the first time Pratt's companies have fallen
foul of the ACCC, with the company paying a $500,000 fine for
trying to lock a competitor, Northern Pacific Paper, out of the
waste paper business in the late 1990s.

The appropriateness of penalties and the orders agreed to by
Visy and the ACCC will be decided by Justice Peter Heerey in the
Federal Court on Tuesday. A $40 million penalty has been derided by
email newsletter Crikey as just .75 per cent of a Pratt
fortune estimated at $5.4 billion by business magazine
BRW.

But it appears unlikely the ACCC will receive the scorn heaped
on the Australian Securities and Investments Commission for what
was perceived as a slap-on-the-wrist $130,000 fine for Melbourne
businessman Steve Vizard's three insider trading counts.

Pratt, 73, has been spinning his story vigorously, claiming the
illegal deal with Amcor was nothing more than a disguise for
ripping off his arch rival.

"Visy's actions were motivated by a desire to take advantage of
our competitor," Pratt told employees in a letter this week.

It is a curious defence of an illegal deal with a competitor. It
amounts to saying: "While I planned to rob the bank, I was actually
going to rob my fellow robber."

But the glowing plaudits for Pratt from Labor and Liberal camps
despite his misdeeds suggest a payback for one of the Pratt
"business secrets" penned by James Kirby in his 2004 biography of
Pratt: "Pay top dollar for power connections."

For those in any doubt about this, former ACCC chairman Allan
Fels was revealed this week as an appointee early last year of
Visy's Trade Practices Compliance Committee.

The rise of Pratt from a Shepparton boy learning the box-making
trade alongside his Polish emigre father Leon to becoming a fixture
of Melbourne's business, arts and sports scene is legendary. He
made a splash in Sydney in 2000 when his relationship with Shari
Lea Hitchcock, and the fact they had a daughter, Paula, was
exposed.

On social occasions, Pratt is no grumpy cardboard king expecting
tribute.

"He's the guy who will be topping up glasses and really
concerned. 'Do you want some more French champagne, do you want a
beer?'," a visitor says. "I have never heard him say a cross word
or fight or argue; he's not a big lumbering billionaire throwing
his weight around. Quite the reverse."

There is much to admire in the drive and determination that led
Pratt to grow his cardboard box business into a mammoth Australian
and US operation. Bob Carr said so himself when he wrote in The
Bulletin in 2003, when he was Premier, that Pratt's was "the
story of one of Australia's signal business successes".

Industry commentators are glowing about the competitive
advantage the fast-moving Visy has gained over its slower- moving
publicly listed rival, Amcor. Robert Eastment, editor of monthly
industry title Pulp & Paper Edge, speaks almost
reverently about a 60-day period in which Visy started and
completed construction of a new $60 million box plant in Brisbane.
This feat was followed by a Visy shindig for all the local fruit
and vegetable growers.

Much of Visy's marketing budget is dedicated to favours and
rewards for customers. Visy's launch party for its Georgia plant in
the US in 1999 included Ray Charles, Muhammad Ali and George Bush
Snr as guests. Richard's son, Anthony, did a duet about box making
with entertainer Paul Anka to the tune of I Did It My
Way.

So if Visy was so successful, why did it court disaster with
Amcor? Eastment believes Pratt's problems with the ACCC stem from
the hard-nosed culture he has built up at Visy.

"I think Visy's corporate culture of winning at all costs
blinded them to the fact that they were breaking the law," he
says.

Eastment has witnessed this culture as a consultant to the
organisation.

"One of his (Pratt's) favourite comments is he employs people to
work from five to nine, and what they do in their own time is their
own business," he says.

Ziebarth, who is chairman of the Queensland fruit and vegetable
growers' association, Growcom, is certainly not buying Visy's view
of the world.

"I guess the bottom line is their collusion has cost us money,"
he says.

Frustratingly, Growcom unsuccessfully tried to raise the issue
of anti-competitive conduct with the ACCC in May 2001, almost a
year after the anti-competitive conduct had started.

"It was because both of those companies put their prices up
within a week," he says. "We made a report into ACCC and said,
'Look what's going on'."

THE collusion is no small issue for fruit and vegetable growers.
A 10 kilogram box of cucumbers might sell at a wholesale price of
$7.50. But the boxes  known as a T35  might cost the
growers $1.50 each.

That means the price of the box represents 20 per cent of the
cost of the cucumbers being sold.

"When there's even a tiny movement in the price of packaging, it
can have a huge impact on our profitability," says Ziebarth.
"Sometimes those cucumbers, when the market's heavily supplied,
sell for $3 or $4 a box."

The maths of cartel extortion are pretty simple. If Ziebarth
uses about 100,000 T35 boxes in a year, he faces a bill of
$150,000. But if the prices have been artificially inflated by 10
per cent, he has overpaid by $15,000. Over five years, he's lost
$75,000.

Ziebarth in fact uses about 700,000 boxes of differing kinds to
sell his fruit and vegetables  and his helplessness at the
hands of two major suppliers clearly rankles.

"We're locked in, there's nowhere to go. When we lose that
dynamic of competition between the only two players we get it in
the neck," he says.

It's a similar kind of math that has led Cadbury Schweppes
 a huge user of packaging  to slap a $120 million claim
on Amcor and allege the anti-competitive conduct of Visy and Amcor
extended beyond cardboard boxes and into drink containers.

Visy's argument that it was out to knife Amcor in its illegal
deal is supported by market share figures that show Visy
progressively increasing its market share at the expense of its
rival, from about 49 per cent in 2000-01 to about 55 per cent in
2004-05. During the same period Amcor's market share fell from 44
per cent to 36 per cent.

This was the period Visy had entered into an anti-competitive
agreement with Amcor, until late-2004 when Amcor effectively
"rolled over" to the ACCC.

Visy is also busy telling customers that its price increases on
its cardboard boxes over 10 years have been below the increase of
inflation.

Rebecca Gilsenan, a principal of Maurice Blackburn Cashman who
is representing the users of cardboard boxes in a class action
against Amcor and Visy, says she does not accept the proposition
prices for boxes have been below the inflation rate. And even if
they have, she says, it does not mean the anti-competitive conduct
has not hurt customers.

"What's to say prices would not have gone down significantly
more and the market would not have benefited from even further
price falls?" she says.

Not all customers are seething. Nigel Garrard, the managing
director of fruit cannery SPC Ardmona, based in Shepparton where
Pratt's father founded the business, says the business reviewed its
packaging prices when the allegations were first made.

"Our effective price has come down over the last 10 years," he
says. "I don't think we have seen from our business point of view
any real effect at all."

And he says he is able to benchmark these costs against prices
his company's ventures in Europe and Asia pay for the same
products. "I certainly don't feel as though we're disadvantaged at
all in Australia."

And he returns to the generosity that the Pratt company has
shown, donating the packaging for SPC Ardmona's share-a-can drive,
when the company and workers donate a day of production to
charities throughout Victoria.

"It's a real feel-good day," he says.

The undeniably generous Pratt Foundation gives about $10 million
to charity each year. But the lingering question raised by Pratt's
illegal behaviour is simple: Whose money is it really?